Will FATF pressure Iran in February post Israeli membership?

Iran already has problems with the FATF with it being singled out along with North Korea for a line of negative public statements in recent years and as a high-risk jurisdiction.

December 12, 2018 04:08
3 minute read.
Missiles and a portrait of Iran's Supreme Leader Ayatollah Ali Khamenei in Tehran, Iran

Missiles and a portrait of Iran's Supreme Leader Ayatollah Ali Khamenei in Baharestan Square in Tehran, Iran. (photo credit: NAZANIN TABATABAEE YAZDI/ TIMA VIA REUTERS)


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With Israel joining the prestigious FATF (Financial Action Task Force) on Monday, will it be able to work with the US to pressure Iran financially at the upcoming February 17 meeting?

Iran already has problems with the FATF with it being singled out along with North Korea for a line of negative public statements in recent years and as a high-risk jurisdiction.

In addition, an October FATF statement said its members should “continue to advise their financial institutions to apply enhanced due diligence, including obtaining information on the reasons for intended transactions, to business relationships and transactions with natural and legal persons from Iran.”

However, these points were secondary with the bottom-line from the October statement being FATF’s decision not ti re-impose economic countermeasures against Iran which it had imposed prior to the 2015 Iran nuclear deal.

The US-based Wisconsin Project which monitors a range of Iran developments, noted in a November report that FATF’s decision not to reimpose economic sanctions on Iran” provides temporary support for efforts by the remaining parties in the nuclear agreement with Iran…to preserve the agreement” in contradiction to US efforts.

Further, the Wisconsin Project said that the FATF’s mixed decision, but which mostly still favored Iran “reflects an ongoing struggle between the European Union's effort to find a financial mechanism to allow European business to continue trading with Iran and US efforts to end almost all such ties.”

The FATF October statement does warn Iran that it must progress on measures to counter terror-financing and money-laundering before February 12 or potentially face “further steps” against it.

While acknowledging some progress by Iran in passing reform legislation to its financial system, the FATF listed nine items that remain outstanding.

Some of these items include a failure: criminalize terrorist financing and money laundering offenses, to identify and freeze terrorist assets, to enforce a customer due diligence regime, and to establish an independent financial intelligence unit.

If full FATF pressure was brought to bear, it could include "countermeasures" including “preventing Iranian banks from establishing overseas subsidiary branches, requiring banks to review and terminate correspondent accounts with Iranian banks, and limiting business relationships or imposing enhanced monitoring and reporting requirements on transactions involving Iran,” according to the Wisconsin Project.

A review of several past public statements about Iran in recent years reveals that the public statements demanding that Iran come into compliance with FATF requirements have gotten more adamant.

However, a review of the status of other countries with the FATF reveals that it is an organization run by consensus which is more comfortable with waiting an extended period for results than it is being aggressive.

With obvious differences, the FATF has put a pause on its processes for evaluating Syria and Yemen.

The FATF’s statements about these countries recognize the ongoing wars there as a technical matter which is indefinitely halting progress, but appear to put aside the wanton mass killings of civilians and problematic financial transactions which back these killings.

In this light and in light of its membership which include many EU countries loyal to the 2015 Iran nuclear deal as well as countries like Turkey, South Africa and others, which are not supportive of Israel, it is hard to expect the FATF to take a stronger stance against Iran.

Moreover, the mild October statement was put out while the FATF’s current president is American, Marshall Billinslea.

If ever one would have expected the FATF to take a strong stance on Iran, it would have been with a Trump administration official at the helm leading into the reimposition of US oil sanctions in November.

The Wisconsin Project also summarized FATF-Iran dealings as Tehran successfully dodging any real crackdown.

On October 7 and December 5, the Financial Tribune reported that Iran took significant votes regarding FATF-relevant legislation.

Most likely Iran will continue to make enough incremental progress that, with Israel as a member or not, it will at most face continued steady criticism, but not major new consequences. 

This means that FATF membership by Israel may give it another podium to publicly challenge Iran, but likely not a platform to really turn the screws on the Islamic Republic.

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